Ananth Narayan, professor at SPJIMR said Mr Shaktikanta Das has been saying there would be co-ordinated response to the Budget and that is what reflected in today's policy announcements.
Given the evolving growth-inflation dynamics, the Reserve Bank of India as expected, on February 6, kept repo rate unchanged at 5.15 percent in its bi-monthly policy meeting.
The bank also decided to persevere with the accommodative stance as long as necessary to revive growth, while ensuring that inflation remains within the target.
The RBI cut GDP growth forecast for first half of FY21 by 30-40 bps from 5.9-6.3 percent to 5.5-6 percent.
The FY21 GDP growth forecast is at 6 percent, while for FY20 it is at 5 percent with 4.6-5.5 percent for second half of FY20.
The RBI expects inflation at 3.2 percent and GDP growth at 6.2 percent Q3FY21, which indicated that the policy is hawkish but maintained accomodative stance, experts feel.
The bank revised CPI inflation projection upwards to 6.5 percent for Q4FY20 and sees 5.4-5.0 percent for first half of FY21.
"The Budget is out, and there is a lot of clarity about the government finances, the RBI has crafted a fine balancing act of reconciling the requirements of growth with stability," Joseph Thomas, Head of Research - Emkay Wealth Management said.
The RBI announced several measures to boost realty, housing, MSME and NBFC segments.
Even if real estate project gets delayed by one year, then that would still be treated as standard and not NPA.
If banks give incremental housing, auto and MSME loan then that amount will be be deducted from cash reserve ratio, which means the banks have more money in hands. MSME loans will be connected to external benchmark rate.
It is a positive for banks, auto, housing, NBFCs and MSMEs, experts feel.
"The benefit of CRR to banks for the auto, home and MSME loans is a big positive for the overall market as liquidity was the main concern for economic growth," Amit Gupta, Co-Founder & CEO at TradingBells told Moneycontrol.
He said there was a big booster for the real estate sector in terms of extension of date of commencement of commercial operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification.
Experts take on RBI move:
Mohit Ralhan, Managing Partner & CIO at TIW Private Equity
RBI has continued to keep the accommodative policy stance. The decrease in requirement of cash reserve ratio for housing, auto and MSME loans for 6 months is a positive move which is likely to result in a better lending environment.
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank
Very aptly, the MPC has addressed the growth concerns through pushing transmission via tweaking the liquidity framework, providing LTROs and incentivising credit to select sectors. We expect these measures to aid transmission with the shorter end of the yield curve expected to rally meaningfully. These measures should help availability of funds at lower costs and aid sectors in stress.
Dhiraj Relli, MD & CEO at HDFC Securities
Reliefs to MSMEs and real estate sector are welcome and will positively impact the valuations of lending companies and real estate companies.
Jimeet Modi, Founder & CEO, Samco Securities
Budget Part II was delivered by RBI in the form of lowering costs to MSMEs and bringing some life into realty wherein loans to commercial sector will be considered as standard (Projects which are just about to complete but are stuck due to last mile funding gaps). RBI indeed used all its might to force banks to lower interest rates to induce transmission for the benefit of end users, which it has partly achieved. New loans are now 69bps cheaper and old loans are cheaper by 13bps given the total 135 bps cut in 2019. Although, interest rates have maintained a status quo, but the RBI has smartly lubricated the slower moving parts of the economy.
Amar Ambani, Senior President and Head of Research – Institutional Equities at YES Securities
Along expected lines, MPC unanimously decided to maintain status quo on the policy rate but remain accommodative, as long as necessary, to revive growth. Reduced CRR requirement for incremental retail loans was a positive step. With inflation expected to remain elevated in the coming months, we see a long pause on repo rates. However, we expect the RBI to continue to act with other monetary tools like open market operations (OMOs) and Operation Twist.
RBI and government will likely take steps to improve transmission of rates in the economy. We see headline inflation coming off significantly in H2 FY21, with favorable base effect kicking in and fuel and food prices decelerating. RBI will be in a position to cut rates again after a long pause, in our opinion. We’re yet to work out extent of cuts, but a 25 basis points should come through at the very least.
B Prasanna, Head – Global Markets, Sales, Trading & Research at ICICI Bank
The policy today is a “whatever it takes” moment for India and its policy makers. Several steps taken by the MPC are truly path breaking and shows the willingness of the Governor and the MPC to think laterally. The crowning glory of all measures is the provision of long term money through LTRO at the repo rate that is intended towards facilitating better transmission in the bond and loan markets. Besides lowering rates in the short end of the sovereign curve it is also likely to lower Corporate Bond yields, deposit rates and lending rates. Additionally, leeway provided on CRR on incremental retail loans, extending the scope of external benchmark linked loans, extension of restructuring benefits for MSMEs and commercial real estate will all go a long way towards providing much needed credit to these stressed sectors as well as help in aiding stressed projects.
Even as the MPC retains its accommodative stance and admits to further room for cut(s), it is constrained currently on the policy rate front as inflation remains uncertain and elevated. The MPC has however displayed its clear intent that several instruments are available at its disposal to support growth, ensure adequate systemic liquidity, enable better transmission and channelize better credit flow. Going forward we expect the MPC to react to an evolving growth-inflation situation. While the base case is still for a pause, probability of one cut cannot be ruled out sometime in the second half of the calendar year when inflation is likely to fall towards 4 percent.
Ravikant Bhat, Senior Analyst - BFSI at IndiaNivesh
RBI expectedly held the policy rates even as it raised the near term inflation forecast to 6.5 percent. However, noting improved arrivals of Kharif and Rabi harvests and easing household inflation expectations, the inflation is forecast to ease to 3.2 percent by Q3FY21E. The accommodative stance of the policy alongwith multiple supportive measures for MSMEs, NBFCs and banks are steps in the right direction which will help ease credit flow, help banks manage stress and soften loan pricing."
Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares & Stock Brokers
RBI expects high inflation to continue in H1 FY21 but fall sharply below 4 percent thereafter. RBI also expects recovery of growth to continue. It has been categorically stated, “The MPC recognises that there is policy space available for future action”. We, however, are less sanguine on this as 12.2 percent in MSP hike during 2019 is likely to keep food inflation elevated despite continued softening of onion prices. Moreover, the base effects of fuel and manufactured product prices are also unfavourable. With retail inflation in 5-5.5% range in 2020, we do not expect any rate cut in the current year.
Despite our expectation of no rate cut in 2020, the categorical statement by MPC about the possibility of rate cut should boost sentiments. Minor fall in some lending rates, boost to bank NII. Linking credit to medium industries to external benchmark, removal of CRR requirement on fresh retail housing and auto loans and credit to MSME are positive steps. These steps may marginally reduce the interest rates on such fresh loans. The removal CRR select loans (around 15 percent of banks' outstanding loan book) is also likely to give a temporary boost to banks' net interest income.
Amit Gupta, Co-Founder & CEO at TradingBells
The benefit of CRR to banks for the auto, home and MSME loans is a big positive for the overall market as liquidity was the main concern for economic growth. There is a big booster for the real estate sector in terms of extension of date of commencement of commercial operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification. So we can say that this monetary policy is an extension of the budget to boost economic growth.
Joseph Thomas, Head of Research - Emkay Wealth Management
The budget is out, and there is lot of clarity about the government finances, the RBI has crafted a fine balancing act of reconciling the requirements of growth with stability.
In the recent policy pronouncements, the RBI had very clearly indicated that the requirements of growth should get precedence over stability, against the conditions of sluggish economic growth and the fall in consumption and investment demand. In line with this, the RBI cut the repo rate many times but had left the rates unchanged the last time around too.
Inflation has been gradually rising, and the last CPI numbers indicate a strong rise in inflationary pressures but occasioned mostly by the food basket. While this may be seasonal, the rise in the prices of some of the components like pulses may linger on for more time compared to the prices fruits and vegetables as these are crops which have shorter cycles.
In the assessment of the RBI the inflationary pressures may sustain for longer time, and they have also cited the volatility in crude oil prices due to the geopolitical conditions.
It was widely expected that the RBI was likely to continue with the pause till there is greater visibility on the inflation front. At this juncture, rate modification is actually not required as the interbank market has a huge surplus of close Rs 3 lakh crore to support the liquidity requirements of the system, and this alone will ensure that the short-term rates do not move up.
The status quo comes as a relief to the short end of the curve, but the pressures at the long end may persist for longer time.
Deepthi Mary Mathew, Economist at Geojit Financial Services
It was an expected move by the RBI, maintaining the repo rate unchanged at 5.15 percent. With the inflation rate breaching the upper band, it will take time for the Central Bank to revive the rate cuts. By maintaining the accommodative stance, there is scope for rate cuts once the inflation rate falls back to a comfortable level.
Ananth Narayan, professor at SPJIMR told CNBC-TV18
It is fill up to fresh lending to these sectors auto, housing and MFMEs, hence it is a good positive.
Mr Shaktikanta Das has been saying there would be co-ordinated response to the Budget and that is what reflected in today's policy announcements.
Actually given the current economic slowdown, stress in NBFCs and MSMEs, any relief to them is welcome.
Kaushik Das - Director and Chief Economist - Deutsche Bank told CNBC-TV18
We already increased inflation forecast and the next appropriate time for RBI to cut repo rate could be August.
Beyond that inflation may come down to 3 percent and we need to see global growth due to coronavirus impact.
If inflation starts falling, then at some point of time, the market may start pricing in rate cut early and as the market wants RBI to be preemptive for this, the rate cut could be in June 2020.
Really the RBI created enabling part today by acting on credit growth.
Keki Mistry, Vice Chairman and CEO - HDFC told CNBC-TV18
It is a welcome move on the extension of the timeline for commercial realty loans as the steps taken by RBI will boost GDP growth.
However, the issue of lack of funding to stuck projects was not addressed in the policy meet.
More steps should be taken for MSMEs and banks should be more incentivised to lend to MSMEs due to CRR move.
How do we resolve the stuck realty projects is the need of hour. The demand will come if supply is proper but if there is oversupply in big cities then demand won't come.
In affordable housing segment, the demand and supply is proper. If these several stuck projects get cleared then there would be demand for realty.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.